JPMorgan Chase & Co. has been ordered by the Financial Industry Regulatory Authority (FINRA) to reimburse customers more than $1.9 million for losses that occurred from unsuitable investment recommendations. The firm also has to pay a fine of $1.7 million.

According to FINRA, brokers with Chase Investment Services Corp. made nearly 260 unsuitable investment recommendations involving UITs and floating-rate loan funds to unsophisticated customers with little or no investment experience and who had conservative risk tolerance. As result of the investments, Chase customers suffered losses of about $1.4 million.

FINRA also found that Chase failed to implement supervisory procedures to reasonably supervise its sales of UITs and floating-rate loan funds.

A UIT is an investment product that consists of a diversified basket of securities, which can include risky, speculative investments such as high-yield/below investment-grade or “junk” bonds. Floating-rate loan funds are mutual funds that generally invest in a portfolio of secured senior loans made to entities whose credit quality is rated below investment-grade, or “junk.”

Seniors are often an easy target for investment fraud – so much so that the Financial Industry Regulatory Authority (FINRA) is warning some broker/dealers about the use of designations that may imply special expertise in working with elderly investors.

In a regulatory notice issued earlier this month, FINRA reminded firms of their supervisory obligations regarding how they use certifications or designations that imply expertise, training or specialty in advising senior investors. The notice also outlines findings from a survey FINRA conducted with broker/dealers and their use of senior designations.

Among other things, findings from the survey showed that some supervisory procedures were not discerning enough when it came to the quality of the designations. And, in some cases, the senior designations approved by various broker/dealers did not require rigorous qualification standards.

As reported Nov. 15 by Investment News, regulators have been concerned for some time now regarding the use of senior designations, as well as the marketing practices used by many broker/dealers to sell products to elderly investors. One of those practices is the “free-lunch seminar,” which has often been used to lure people – especially the elderly – into investing in unsuitable or even fraudulent products.

According to the Securities and Exchange Commission (SEC), these types of lunches are typically held at upscale hotels, restaurants, retirement communities and golf courses. In addition to providing a free meal, the firms and individuals conducting the gatherings often use other incentives such as door prizes, free books, and vacation deals to encourage attendance. The real purpose of the meetings, however, is often to entice attendees’ to open new accounts with the sponsoring firm and, ultimately, in buy into the investment product being touted.

The most commonly discussed products at the sales seminars include private placements, variable annuities, real estate investment trusts, equity indexed annuities, mutual funds, private placements of speculative securities (such as oil and gas interests) and reverse mortgages, the SEC says.

The meltdown of MF Global has left countless investors out in the cold, unable to access their now-frozen accounts.

As of Oct. 31, when MF Global’s parent company – MF Global Holdings – filed for bankruptcy protection, more than 150,000 customer accounts were frozen. The sudden turn of events occurred after MF Global announced it had lost money on a number of bad bets related to derivatives contracts.

The Commodity Futures Trading Commission is continuing its investigation into the collapsed brokerage, after discovering that some $600 million was missing in accounts held by MF Global clients.

On Friday, Nov. 11, MF Global laid off 1,066 employees, keeping only a skeleton staff to help with the dissolution of its business. Employees were notified of the layoffs in town hall meetings at MF Global’s offices in Manhattan and in Chicago, according to the New York Times. Jon Corzine, MF Global’s former CEO, announced his resignation earlier this week.

The MF Global bankruptcy is the eighth-largest bankruptcy ever.

Meanwhile, a federal statute designed to protect customers of failed brokerages may not be able to help MF Global’s commodities customers if the trustee in the case – James W. Giddens – is unable to locate the $600 million in missing customer money.

That leaves more questions for MF Global clients – and fears they may never see their money again.

What’s wrong with inverse or leveraged exchange-traded funds (ETFs)? Plenty, if you don’t fully understand how the products actually work or the risks involved.

Inverse or leveraged exchange-traded funds are considered synthetic funds, and they are complicated products that often entail much more risk than traditional ETFs. Leveraged ETFs use “borrowed” money in the form of swaps or derivatives to double or triple the daily returns on a stated index. Inverse ETFs do the opposite. Instead of tracking the fund to the performance of an index, the price of an inverse ETF moves in a direction opposite to the daily movement of its index.

In the past year, synthetic funds have come under growing scrutiny by regulators over concerns that investors may not be aware of the risks that the products pose. Earlier this summer, the Financial Industry Regulatory Authority (FINRA) issued a regulatory notice on leveraged and inverse ETFs. Among other things, FINRA said that the complexity of inverse and leveraged ETFs made them unsuitable for any retail investor who planned to hold on to them for longer than one trading session.

Unfortunately, many investors failed to heed FINRA’s warning because their advisors never thoroughly explained the fine print associated with leveraged and inverse exchange-traded funds. Instead, investors held their investments for much longer periods of time, only to see returns that were vastly different from what they were promised by their financial advisers. This particular scenario has become more frequent over the past year as volatility in the financial markets made performance surprises in the ETF market the norm rather than the exception.

The bottom line: If you’re thinking about investing in leveraged or inverse exchange-traded funds, think long and hard before taking action.

J.P. Morgan Chase & Co. and MF Global Holdings once were tight knit business associates; now the two entities are butting heads as regulators search for answers in the case of the $600 million missing from MF Global client accounts.

The discovery of the missing client funds effectively put an end to a potential deal to sell MF Global to Interactive Brokers Group. Instead, MF Global filed for bankruptcy protection last week.

As a result, MF customers are now finding themselves in an unforeseen situation. As reported Nov. 8 by the Wall Street Journal, Ken Morrison is one of many MF Global customers unable to withdraw any cash from his account. Morrison doesn’t know how much he will eventually get back, or when, according to the WSJ article.

But it isn’t just Morrison’s cash at stake, it’s also his trading. Morrison’s account was one of 17,000 accounts that were moved to rivals of MF Global, but the trustee liquidating the MF Global has retained $1 billion in those accounts for the time being to pay any potential claims. On Nov. 7, Morrison had to sell corn and wheat trades in order to come up with the cash necessary to back up his remaining trades, the Wall Street Journal says.

Meanwhile, MF Global says J.P. Morgan dragged its feet when it came to settling trades made by MF Global during the time it tried sell various assets. Execs at MF Global believe the supposed slow-down complicated the company’s efforts to find a buyer and may have even caused the $600 million gap in customer accounts.

The allure has rapidly faded for once-hot real estate investments known as TICs, or tenant-in-common exchanges. Between 2004 and 2008, investors bought $13 billion worth of TICs, according to OMNI Real Estate Services. But TICs, also called 1031 exchanges, are complex, high-fee deals and, as in many deals orchestrated by Wall Street, the products have increasingly left countless investors high and dry.

Case in point: Mary Boston, 70, of Dunlap, Tennessee. In 2007, Boston and her husband sold their local theater for $1.2 million, net of debt, according to an Oct. 29 article by the Wall Street Journal. Their tax preparer suggested a financial adviser might be able to help them arrange a 1031 exchange.

After paying the advisor, who was from ING Financial Partners, a 7% commission fee, the couple ended up putting $1.2 million – their entire liquid net worth – into two TICs. In return, they received a stake in two apartment complexes, the Sequoia at Stonebriar in Texas and The Retreat at Stonecrest in Georgia. The offering documents projected an annual yield of 6.5%.

But the Bostons had zero prior investing experience; Mrs. Boston says she told the advisor that she and her husband had a “conservative and moderate” risk tolerance, and that income was their primary investment objective.

After the deals closed, the Bostons had to come up with more money when one of the properties became involved in various lawsuits. Between the capital added and legal fees, the couple has sunk roughly $70,000 more into the property, the Wall Street Journal said.

Meanwhile, the monthly income on the Boston’s investment has plummeted from about $5,000 to $300 – and is projected by the property manager to dry up altogether this month.

The bottom line: TICs are considered a private placement, which is a highly complex and risky investment. The products, in fact, are listed as one of the top 2011 Investor Traps by the North American Securities Administrators Association.

MF Global, which bills itself as a “leading cash and derivatives broker/dealer,” is now the subject of a federal investigation after regulators discovered hundreds of millions of dollars in customer money allegedly missing from the company. The story was first reported on Oct. 31 by the New York Times.

According to the article, the missing money came to light just as MF Global was preparing to sell a major stake of its firm to a rival brokerage. Instead, the deal went south, and MF Global filed for bankruptcy.

Among other things, regulators want to know whether MF Global diverted some customer funds to support its own high-risk trades.

MF Global is run by Jon S. Corzine, a former governor and senator from New Jersey. On Friday, Nov. 4, Corzine resigned from his CEO post.

The investigation into the unaccounted-for cash is in its earliest stages. Several reports put the missing cash between $700 to $950 million. In any case, the situation is troubling to say the least.

On Nov. 4, the New York Times’ Deal Book blog writes that “months before MF Global teetered on the brink, federal regulators were seeking to rein in the types of risky trades that contributed to the firm’s collapse. But they faced opposition from an influential opponent: Jon S. Corzine, the head of the then little-known brokerage firm. … While other financial firms employed teams of lobbyists to fight the new regulation, MF Global’s chief executive in meetings over the last year personally pressed regulators to halt their plans.

And now, remaining members of the MF Global’s board are apparently under close scrutiny by regulators and angry former customers. Also, as the Wall Street Journal’s Bankruptcy Beat blog reports, “the trustee overseeing the liquidation of MF Global’s brokerage business is subpoenaing the company’s top brass, including Corzine, in connection with a wide-ranging probe [of the] broker/dealer’s collapse.”

A proposal to expand private placement offerings via the Internet has state regulators up in arms. Specifically, a bill pending in Congress would use social networking as a way to sell online private placement offerings to more investors. Critics say the concept, known as crowd funding, is a dangerous one, with the potential to victimize investors.

Last week, the House Financial Services committee backed legislation that would make it possible for small businesses to use crowd funding to raise money from investors in exchange for equity stakes. The legislation is expected to go to the House floor for a vote later this week. The measure also would have to pass the Senate and already is facing opposition from state regulators.

Among other things, critics of the crowd-funding legislation say it’s likely to breed fraud and place countless number of unsophisticated investors in financial risk.

“It’s dangerous,” said Heath Abshure, the commissioner of the Arkansas Securities Department, in a Nov. 1 article in Barrons. “Successful investors in small businesses tend to be savvy investors with deep knowledge of a business and its market. Mom and Pop investors on the Internet don’t have the ability to make the right kinds of assessments.”

“This is tailor-made for Internet fraud,” said Mercer Bullard, a law professor at the University of Mississippi, in the same Barrons article. “The measure would allow someone living solely on Social Security to invest $1,500 in an unregistered offering sold through a website that wasn’t subject to regulation as a broker.”

Indeed, using the Internet for crowd-funded deals would affect current protections under which private placements are sold. Currently, those protections do not allow public solicitation and limit the amounts sold to non-accredited investors. That would be eliminated under the proposed crowd-funding plan.

Exchange-traded funds (ETFs) are the latest investment product to find themselves in the hot seat with the Securities and Exchange Commission (SEC). At a Senate Banking subcommittee hearing held today, the SEC announced that it was launching a sweeping review of exchange-traded funds.

Among other things, the SEC says it will be looking at investor disclosures, the transparency of the underlying instruments in which ETFs invest, liquidity levels, fair valuations, and the potential impact of ETFs on market volatility.

The SEC’s review also entails “gathering and analyzing detailed information about specific products,” said SEC Investment Management Director Eileen Rominger.

Recent scrutiny of exchange-traded products has been fueled, in part, by the growth of more complex exchange-traded products that many experts contend are far too complex and confusing for the average retail investor. In particular, regulators are concerned about leveraged and inverse ETFs – funds designed to amplify short-term returns by using debt and derivatives.

An analysis of the “distributions” of non-traded REITs sold by broker/dealer David Lerner Associates reveals that the property investments of the REITs in question largely underperformed at the level required to pay promised dividends to investors, according to an Oct. 16 story by Investment News.

The analysis went on to show that the products, known as Apple REITs, consistently “borrowed from a line of credit and used distributions that investors were recycling back into the REITs to meet the targeted dividend payout.”

A class-action lawsuit has since been filed against Lerner over the Apple REITs. According to the Financial Industry Regulatory Authority (FINRA), Lerner allegedly provided misleading performance figures for Apple REITs and implied that future investments could be expected to achieve similar results.

The Apple REIT lawsuit also sheds light on some of the potential problems concerning non-traded REITs in general. As in the case of the Apple REITs, a number of investors who have purchased non-traded REITs thought they were getting into safe, conservative investments that would protect their savings from the volatility of the stock market.

In reality, non-traded REITs can be highly risky. The products do not trade on a national stock exchange and are therefore illiquid. They also lack transparency, include limited and lengthy redemption periods, and come with exceptionally high commissions and other upfront fees and charges.

Another potential risk of non-traded REITs concerns their dividends, which are not guaranteed to investors. In the past year, a growing number of non-traded REITs have either suspended their dividends or halted them altogether.

Among those that did just that: Behringer Harvard REIT I, Cole Credit Property Trust, Hines REIT and Wells Real Estate Investment Trust II.